Negative amortization

[Former Member]

Dear SAP expert,

We have a case that we would like to amortize the front-end fee over the life of the deal.

Our product is interest rate instrument. And we enter the amount of front-end fee as other flow.

The reason is because this flow will come after the nominal. That's why we don't tick permit "premium/discount".

However, even we try to set effect of update type as 1011, 1014, 1015 for investment transaction, the amortization is always negative (V303).

We enter the front-end fee as positive since it's an investment (loan given).

Posting TBB1      ->      Dr Bank clearing Cr Unamortized (B/S)

Posting TPM1      ->      Dr Income (P/L)  Cr Unamortized

Since amortization is calculated as negative, then posting of TPM1 will be as above.

How can we achieve to get positive amortization?

Please help suggest.

Rgds,

[Former Member]

Hi

Based on the query mentioned above , since you are issuing a loan with premium as per the standard the premium is getting undergoing a negative amortization , if the loan is issued with the discount then positive amortization can be achieved . can you please provide the requirement why you want want achieve postive amortization for the loan which is issued with premium

[Former Member]

Hi Mahesh,

It should be discount, not premium.

Scenario 1: The postings (without "permit premium/discount" selected) are as below:

Dr Loan given 10,000     Cr Bank clearing 10,000 -> MM1100- on 01.01.2012

and then other flow posting

Dr Bank clearing 100 Cr Unamortized (B/S) 100 -> MM1900+ on 05.01.2012

at TPM1, amortization will be negative.

However, Scenario 2, if select "permit premium/discount" in configuration.

The posting will be

Dr Loan given   9,900      Cr Bank clearing 9,900    -> nominal

Dr Loan given      100      Cr Unamortized      100   -> derive bus. -> discount

at TPM1, amortization will be positive.

The reason we don't implement in example 2 because our front-end fee will come later (different value date) and sometimes we don't know the exact amount til we receive the invoice. If u see both cases will finally have same accounting postings and amount.

Even we try to set the effect of the update type to 1011, 1014,1015, the amortization is still negative anyway.

Rgds,

[Former Member]

Hi,

Can you please check what is the effect of the update type MM1900+?

By the way the premium/discount confusion might arise because the terminologies in SAP were from an investment perspective where a front end fee is an outgoing one whereas in the case of loan given, front end fee is an incoming flow.

Regards,

Ravi

[Former Member]

Dear Ravi,

I try different setting from 1010,1011,1014, 1015. but TPM1 will still calculate as negative amortization (V303).

Rgds,